Opening the subject of mobile interconnection is akin to opening a Pandora’s box when all the issues of competition come flying out. It is now in India, with the recent issuance by the Telecom Regulatory Authority of India (Trai) of the sector-shaking Six-Paise Mobile Termination Charge (MTC) Order. Allegations and counter-allegations are flying fast and furious between rival telco camps. Concurrently, incumbents are indulging in their favourite pastime of regulator-bashing and blaming everything unpalatable befalling them on Trai’s acts of omission and commission. To get a fair picture of the turbulent situation, one needs to step back and first understand a little about our telecom liberalisation history and a bit about the complex econometrics of interconnection.
All would admit that in few other sectors (maybe only banking) does a player, for his survival, depend upon interconnection with his competitor. However, in telecom, the utility of a non-interconnected network is zero or insignificant. It is, therefore, easy to understand why there is every likelihood of strong incumbent operators doing everything in their power to deny/limit physical interconnection to block new entrants and/or try and levy exorbitant mobile termination charges and other interconnection charges to stifle their business case. It would be naive to think otherwise in a normal commercial scenario. Therefore, an independent empowered regulator is absolutely essential to ensure that competition is safeguarded through vigil over possible anticompetitive practices in interconnection.
Most might be unaware that Trai was created only because of a major interconnection dispute between the monopolist Department of Telecommunications (DoT) and the new entrants—the fledgling cellular mobile operators—in 1996-97. In December 1996, DoT, the monopoly incumbent operator cum regulator cum policy-maker—all rolled into one entity—came out with a horrendous interconnection tariff order that would have annihilated the nascent business of the new entrants. While by licence condition, a ‘calling party pays regime’ was not in place, and operators and consumers were already hugely burdened by an exorbitant airtime charge Rs 8.4 per minute during non-peak hours on both the caller and receiver, DoT had imposed on the landline caller a humongous additional charge of 24 times the normal charge of Rs 0.4 per minute—i.e. Rs 9.6 per minute.
With such a charge, why would any landline user call a mobile number, which were anyway very few in number and struggling to grow. If this move by DoT had succeeded, the embryonic mobile operators would have been decimated at that stage itself. There was no Trai then. So, the industry rushed to the Delhi High Court, where the Bench realised that this is a complex techno-economic matter and insisted that the long-delayed regulatory body be set up at the earliest to hear this important case. The rest is history. So, headed by Justice SS Sodhi, Trai came into being in March 1997. It held daily hearings for four weeks and ruled to quash the DoT interconnection order to give a new lease of life to cellular mobile operators. Apart from the crushing interconnection tariff aspect, in those days, the private mobile operators were also harassed by delay/denial of physical points of interconnection and Trai had to intervene even for those matters to protect competition.
The author had the privilege of representing/leading the private operators in the High Court, Trai and other fora to secure interconnection justice for the new entrants. One is, therefore, slightly amused as well as saddened to see a replay of the old interconnection dispute, involving both interconnection charges and points of interconnection (PoIs), but with role reversals—the new entrants of the 1990s now being the powerful incumbents resisting a highly disruptive new entrant having superior technology. Once again, Trai’s intervention has been swift and bold, and saved the situation for the consumer. As expected, the incumbents are crying hoarse (like DoT in 1996-97!); but what are the facts?
Has Trai been unfair and incorrect in its calculations? The regulator has deployed the pure LRIC (long-range incremental cost) method of calculating of mobile termination charges (MTC), which is used by most countries. In 2014, Trai had used the hybrid LRIC method, which was appropriate then but, today, 23 years after the start of mobile and being the second largest in the world with over a billion mobile connections and growing, the regulator has appropriately progressed to the p-LRIC methodology, which incentivises operators to move to higher efficiencies. The p-LRIC is well known for catalysing competitive efficiencies. The method determines the MTC of an equivalent operator who has a fair share of the market and is deploying modern technology and is reasonably efficient. Trai has assumed 340 total minutes of usage per subscriber for the equivalent operator—an assumption that is favourable to the incumbents whose MoUs are much higher, usage of which would have depressed the MTC to less than 5 paise! Trai’s assumptions and calculations are most transparently given in the annexures to their detailed explanatory memorandum. One could not ask for more.
Has Trai introduced too sharp a change and too disruptively, without fair notice? Many would be unaware that, as far back as October 29, 2011, the then Trai had submitted to the Supreme Court the results of its calculations by various methods as directed by the apex court and even these had shown that by a pure LRIC method the result came to 10 paise a minute and had indicated that it be applied from 2012. In actual, 20 paise continued till 2014, when it was reduced by the then Trai to 14 paise. Now, three years later, it is being reduced by a generous pure LRIC application to 6 paise. It is clear that the incumbents have had nearly six years’ notice since 2011 to reduce costs by moving to superior technologies of packet-switching and IP networks, and have a smooth transition to increased efficiency.
Has Trai done anything discordant with global best practices? The answer, once again, is a resounding ‘no’! In Europe, as per data of regulator BEREC (Body of European Regulators for Electronic Communications), there has been a reduction of 90.98%, from 14.08 eurocent per minute to 1.27 eurocent per minute in the 12 years from January 2004 to July 2016 (see chart). In the UK, regulator Ofcom’s data shows reduction of about 90%, from 6 pence per minute in 2004 to less than 1 pence per minute by 2016. Here, in India, a 90% reduction from the 30 paise of 2004 would have meant an MTC of only 3 paise, but the regulator has made only 80% reduction to 6 paise. Moreover, while the ratio of MTC to retail airtime price is less than 10% in the UK,13% in Germany and Japan, and only 1% in China, it is as high as 45% in India (see chart).
Is the notice of BAK by 2020 unfair? In 2012, Trai had given notice of zero MTC or Bill and Keep (BAK) regime from 2014. Being already at 6 paise or less and due to growing volumes, costs will inevitably approach zero/negligible values, thus the notice of BAK from 2020 is quite generous and correct. With reduced MTC, current low tariffs become sustainable and consumers benefit. Trai has been eminently fair and needs to be lauded. With incumbents, unfortunately, “there is no remembrance of former generations…”
Honorary Fellow of IET, London, and President of Broadband India Forum. Views are personal.